How to Forecast Cash Flow

Everyone wants the ability to see into the future, but unfortunately we can’t all look at a crystal ball and see our futures. However, a cash flow forecast will grant you the ability to look into your business’s future. A cash flow forecast allows you to track your cash inflows and outflows, see how fast you are burning through cash, and predict periods of low cash availability. Once you have a cash flow forecast it will easily become one of the most important financial planning tools you have for your business.

While this might seem like a daunting task at first, we are here to help!

How to Build a Cash Forecast?

1. Determine the timeline for forecasting 

Cash flow forecasts and planning can span anywhere from a few weeks to several months. Some businesses might be able to accurately forecast cash flows for a year while others can only do so for two weeks. This is because, if you are an established business, you may have a predictable sales channel and a great deal of data from previous years. On the other hand, if you are a new business, you may have limited data, so the farther you predict, the less accurate your forecasts will be.

As a good rule of thumb, most small businesses work best by planning month-to-month, and by projecting cash flows for twelve months with reasonable accuracy. 

2. Forecast Cash Inflows

Now, it comes the time to forecast your monthly revenue. This part might be a little finicky, due to the fact that many businesses fluctuate in sales from month to month, just try to be as accurate as possible. 

First thing you do to forecast sales is to estimate the unit sales for each product. The way to get the most accurate forecast is to write down all the guaranteed revenue first, things such as subscriptions or long-term contracts. You can then look at the past twelve month’s sales and look for seasonality and growth. Some businesses may be highly seasonal while others have constant sales over the year. 

Once you have your seasonality and growth, you can build your forecast by multiplying your past sales by your expected growth for the following 12 months.

Now take your estimated number of sales units for each product and multiply it by the unit price for each product respectively.

Make sure you keep in mind the timing of your cash inflows, which can be in different weeks than the actual sales. For example, Shopify’s pay period is 5 business days plus the days remaining until Friday. While on Amazon as an individual seller you get paid anywhere from between 14 – 21 days. 

3. Forecast Cash Outflows

Forecasting cash outflows involves listing all your ongoing financial liabilities and obligations, and time at which you need to make each payment. Your cash outflows include everything you have to pay for — inventory expenses, marketing and advertising expenses expenses, salaries, raw materials, rent, assets, equipment, bank loans and fees, etc. 

Once you have listed everything you spend, add up all your expenses for the given fiscal period and the resulting sum is your estimated net outgoings for that period. 

In order to predict cash outflows for upcoming fiscal periods, you must estimate your future expense. For example, you can estimate your inventory costs for future periods by taking the number of estimated sales units for each product and multiplying it by the per unit cost of each product respectively.

However, the timing of this outflow can be a little tricky. The easiest way to account for the timing of outflows is to start from your sales forecast and go backwards in time. You can figure out the timing of your outflow by considering the supplier shipping time, the average amount of days you keep your inventory before selling it, and the payment period to your supplier as shown in the chart below:

4. Put it All Together

Now that you’ve done all the hard work, all that is left is to put it all together. This can be done by subtracting your outflows from your inflows for each forecasted period.

If all these calculations seem daunting, you can always use Brightflow AI’s cash flow calculator​ that seamlessly integrates all your financial data to provide a simple, comprehensive, and automated cash flow report in two simple steps. 

 a. Add your sources of cash by syncing your Shopify and Amazon accounts with your Brightflow account (No manual entry required!)

b. Add your expected costs by syncing your Quickbooks and online marketing accounts, such as Facebook and Google Ads, with your Brightflow account (Again, no manual entry required!).

Brightflow AI connects with all of your e-commerce platforms, so your forecast is instantly live with the latest figures. We provide revenue & ad spend information so that you do not have to use confusing spreadsheets or make these calculations manually.

Brightflow AI makes cash flow forecasts simple and easy by consolidating the 15 different confusing excel sheets into an easy to read dashboard with all your company’s financial information. You can stop worrying about confusing financial terms, calculating your cash flow, and struggling to aggregate all your data.

You can schedule a free consultation with Robbie Bhathal, Founder & CEO of Brightflow AI, to get a free personalized financial dashboard for your business!